US Justice Dept Announces Probe Of Bitfinex And Tether

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by Chris

Bitcoin-Rigging Criminal Probe Focused on Tie to Tether

Nov 20, 2018

As Bitcoin plunges, the U.S. Justice Department is investigating whether last year’s epic rally was fueled in part by manipulation, with traders driving it up with Tether — a popular but controversial digital token.

While federal prosecutors opened a broad criminal probe into cryptocurrencies months ago, they’ve recently homed in on suspicions that a tangled web involving Bitcoin, Tether and crypto exchange Bitfinex might have been used to illegally move prices, said three people familiar with the matter.

Bitfinex has the same management team as Tether Ltd., a Hong Kong-based company that created the namesake cryptocurrency. When new coins come to market, they’re mostly released on Bitfinex.

Some traders — as well as academics — have alleged that these Tethers are used to buy Bitcoin at crucial moments when the value of the more ubiquitous digital token dips. JL van der Velde, the chief executive officer of Tether Ltd. and Bitfinex, has previously rejected such claims.

Bitfinex’s general counsel, as well as outside lawyers for the exchange and Tether Ltd., didn’t respond to phone calls and emails seeking comment.

The Justice Department’s probe adds to an existing inquiry into possible misconduct. Both Tether Ltd. and Bitfinex received subpoenas last year from the U.S. Commodity Futures Trading Commission, Bloomberg reported in January. The Justice Department and CFTC are coordinating their examinations, the people said.

Tether’s stability, and it’s name, comes from the fact that its value is supposed to be tethered to the U.S. dollar. Tether Ltd. even says that for each digital coin issued, it has $1 in the bank. Some investors have questioned that claim. One reason the CFTC subpoenaed the company was to seek proof that tokens are backed by a reserve of U.S. dollars, Bloomberg reported in June.

Among the issues the Justice Department is examining is how Tether Ltd. creates new coins and why they enter the market predominantly through Bitfinex, the people said.

The probe follows allegations made in a June paper by University of Texas Professor John Griffin and co-author Amin Shams. Griffin and Shams wrote that trading in Tether shows a pattern of underpinning, and manipulating, Bitcoin.

They claimed that Tether was used to buy Bitcoin at pivotal periods, and that about half of Bitcoin’s 1,400 percent gain last year was attributable to such transactions. Griffin briefed the CFTC on his findings earlier this year, according to two people with direct knowledge of the matter.

Hmmm…let’s see if we can help shed light on the opaque mystery that for some confusing reason the new tether coins created enter the crypto ecosystem primarily through Bitfinex.

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Both companies have the same guy as CEO.

There.  Done.  It’s now been explained.

If you are going to run a financial scam it’s essential that you control the data flow from beginning to end.  That’s just scam logic 101.

I’ve now upped my certainty that Mr. van der Velde and his team are on a plane right now headed somewhere.

Everybody with coins or money on the Bitfinex exchange will either get nothing back or pennies on the dollar at some later time after the bankruptcy trustee sifts through the wreckage, recovers a bit from here and there, subtracts a hefty service fee, and cuts a few checks.

 

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